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U.S. Treasuries fell on Friday after this mornings U.S. jobs report showed strong growth in the number of new positions created, brightening investors’ outlook for economic growth.
Following the release, the 10-year Treasury note yield rose 2.5 basis points to 2.461%, according to Tradeweb data. Yields move in the opposite direction of prices.
The U.S. added 248,000 new jobs in September with the unemployment rate falling below 6% to 5.9% from from 6.1% in August, slightly ahead of economists expectations of 215,000 new jobs and a steady 6.1% unemployment rate.
While Augusts employment numbers, which came in at a disappointing 142,000 were revised higher to 180,000, and July’s figure got revised higher too, to 243,000 from 212,000.
As ever with the jobs report the headline figures don’t tell the whole story. Wages – which are seen as a better indicator to gauge the Federal Reserve’s read on the economy and its ultimate policy path – actually fell, with average hourly earnings down 1 cent in September to $24.53. The labor-force participation rate fell too, to 62.7% from 62.8% in August and 62.9% in July, which helps explain the drop in the unemployment rate.
Still, the so-called U-6 unemployment rate, which presents a broader read on actual employment among those seeking full-time work, fell to 11.8% in September from 12.0% in August. Average weekly hours worked also ticked higher in the private sector, to 34.6 from 34.5 in August.
Todays Other Top Stories
Learn Bonds: – Making sense of a perplexing year in the bond market. – Trying to understand the movement in the bond market this year has been perplexing for many. Perhaps it would be instructive to listen to someone who “got it right” so far in 2014.
Bernardi Securities: – Premium municipal bonds: Benefits in a rising rate environment. – Many investors find it difficult to pay a price greater than par for a bond. We often find this hesitation is purely psychological and causes some investors to miss an advantageous structure in a low interest rate environment. This market commentary is written to explain why premium municipal bonds often offer value in today’s market — helping to justify paying above par for a bond.
Reuters: – Wall Street watchdog taps 800 arbitrators to hear Puerto Rico bond cases. – FINRA plans to flood Puerto Rico with more than 800 arbitrators who have agreed to hear cases from investors who lost money in closed-end Puerto Rico bond funds, according to Wall Street’s industry-funded regulator.
Bloomberg: – Detroit’s Orr defends unequal recoveries in bankruptcy. – The potential effect of Detroit’s bankruptcy on the U.S. municipal bond market justifies paying some debt investors more than others under its $7 billion restructuring plan, the city’s emergency manager testified.
Fox Business: – How to position your portfolio for muni-bonds. – James Camp of Eagle Asset Management on Bill Gross leaving Pimco for Janus Capital and how to invest in the muni-bond market.
MarketWatch: – Puerto Rican bonds are getting expensive. – For months, David Tawil extolled the virtues of owning municipal bonds issued by the struggling island of Puerto Rico. But recently, the hedge-fund manager soured on the debt. The reason? The heavily indebted, economically beleaguered commonwealth’s bonds are getting expensive.“
Bloomberg: – Candlewood hedge fund plans fund to buy Puerto Rico debt. – Candlewood Investment Group LP, the $3 billion hedge-fund firm run by Michael Lau, plans to start a fund to profit from Puerto Rico’s debt market, as the commonwealth and its agencies struggle with $73 billion of obligations.
WSJ: – Bonds: What to do now. – Mr. Gross, the world’s most influential bond manager, left Pacific Investment Management Co. abruptly on Sept. 26, roiling fixed-income markets and sending at least $23 billion scurrying out of Pimco Total Return Fund. His departure raises five timely questions for investors.
Reuters: – Investors batten down hatches for volatile end to 2014. – A Reuters poll of investment managers around the world published on Sept. 30 found a sense of caution manifested in people putting their biggest bets since March on bonds, which are typically regarded as a shelter against market volatility.
FT: – Investors to face true test of courage. – (Subscription) With the finishing line for the investing year looming on the horizon, some find themselves caught between a strategy of enduring near term market turbulence, or trying to take advantage of lower asset prices that may benefit from a year-end rally.
Deal Book: – When debt markets don’t really act as markets. – Is the debt market really a “market”? Several recent events, each largely independent from the others, should cause us to ask this basic question.
Barron’s: – Gross’ move may have crimped debt issuance. – In the first two weeks of September (including one holiday), U.S. investment-grade and high-yield debt surged at an $11.5 billion daily rate — definitely the strongest of the year. However the daily rate cooled to $5.7 billion in the final 12 trading days of the month.
WSJ: – U.S. government bonds drop after jobs data. – A strong U.S. jobs report sparked selling in ultrasafe U.S. government bonds on Friday as investors embraced stocks.
Investment Grade Bonds
FT: – Bond investors demand more from corporate borrowers. – Investors are demanding more compensation from corporate borrowers seeking to raise funds in the US as market volatility rises and bond prices start to falter.
Reuters: – Fears of rising rates fade in high-grade bond market. – Fears that rising US rates will sound the death knell for bonds are fading, following the past week’s extraordinary performance of acquisition financings in the investment grade new issue market from names like Bayer.
High Yield Bonds
ETF Trends: – Hunting for deals with a junk bond ETF. – I do the “ETF of the Week” for MarketWatch every Thursday on Chuck Jaffe’s MoneyLife Show where I highlight big movers and disappointments among exchange traded funds.
S&P Capital IQ: – US high yield bond funds hit with $2.28B investor cash withdrawal. – Retail-cash flow turned negative for U.S. high-yield funds in the week ended Oct. 1, with a net outflow of $2.28 billion, according to Lipper. This is the largest withdrawal in eight weeks and the fourth over the past five weeks, for a net outflow of $3.9 billion over that span.
ETF Trends: – Is this time different? A look at duration. – As we have written about, historically speaking the high yield bond market has performed well during periods of rising rates, due to the fact that the high yield market tends to have a lower duration than other fixed income asset classes, has a zero to negative correlation to Treasuries, and generally rates are rising during periods of improved economic environments, which is a positive for these credits. However we were recently asked if this time is it is different because of the historically low rates. We believe that the answer is both no and yes.
Bloomberg: – Secret leveraging of junk bonds revealed in stock trade. – If stock investors are any guide, the $1.3 trillion U.S. junk-bond market is being inflated by a growing amount of leverage being used by buyers.
Reuters: – EM reaches critical juncture. – Investors are increasingly fretting about the outlook for emerging markets as a combination of market and political risks threatens to derail a successful year for the asset class.
Bloomberg: – Junk status looms as Rousseff rouses bond angst: Brazil credit. – The prospect President Dilma Rousseff will be re-elected is putting Brazil on the verge of junk status in the bond market.
ETF Daily News: – Making a move with bond ETFs. – Let’s say that you are having doubts about your core bond holding and want to pull some money out, but you aren’t quite sure where you ultimately want to allocate it. It could take a few weeks to do the proper due diligence and find a new fund, how can you balance your desire to move quickly with your need to make a prudent decision about the new investment? Enter the ETF.
Charles Schwab: – Convertible bonds delivering stock-like returns. – Convertible bonds are on track to register the highest issuance in seven years and post stock-like returns this year, after registering double-digit gains in 2013. Yields on convertibles are closer to the yields on regular corporate bonds even though they carry higher risk. We think convertibles make more sense as part of your equity allocation and not your fixed income portfolio.
Reuters: – As Gross exit sank in, traders saw confusion, then opportunity. – As bond traders began what they thought would be a quiet day last Friday, a simple headline crossed their screens: “William H. Gross joins Janus Capital.”
Investors.com: – A good time to check your bond portfolio. – Bond market volatility has been on the rise lately, albeit from very low levels, leaving many investors wondering what they should do in response. Russ explains why he continues to advocate that investors rethink their bond portfolios.
Tulsa World: – 5 reasons bonds may be less safe than you think. – Burned by the stock-market crash during the financial crisis, investors have poured a trillion dollars into bond funds in the past six years. They like the interest payments that bonds throw off and that their prices barely move day to day. But some experts say danger signs are flashing, and prices could fall fast. Here are five reasons bonds may be less safe than you think.
FT Adviser: – Bond fund managers take action as spreads narrow. – (Subscription) Spreads have narrowed in 2014 and there are signs the bull market in bonds is ending, meaning investors should consider taking risk off the table, a Threadneedle report has suggested.
Biggest reason that the long end has stayed so well bid:interest rate differentials vs other DM’s, low inflation, amt of 10y equiv Fed owns?
— David Schawel (@DavidSchawel) October 3, 2014
Did anyone really expect BIll Gross to retire like Peter Lynch, get kicked upstairs to become a marketing/advertising persona?
— Barry Ritholtz (@ritholtz) October 3, 2014
Bonds not buying this print – low inflation expectations, low wage growth, surging $, doesn’t seem like a good back drop for a hike
— David Schawel (@DavidSchawel) October 3, 2014